MLR - Silver or gold?

Published : August 19 2011 at 5:22 ET

Silver or gold?

Silver has managed to buck the downtrend seen in other commodities as of late, and gold continues to hit new price highs. For our many members who have continued to hold and/or pyramid their positions in each from reports we have been issuing periodically, which is the better precious metal?

Can silver be hurt in a global slowdown or recession?

Silver doubles as both a precious and industrial metal and most of the silver used in industrial applications is consumed rather than recycled.

Strengths in Silver

Indeed, the perception in silver as not just an industrial metal but an investment has grown considerably. Year-to-date, silver has climbed 31% while gold has climbed 29%. Global investment demand in silver climbed to 279.3 million ounces in 2010, up about 40% from 2009. That compares with a rise in global industrial demand of about 20%, to 487.4 million ounces in 2010 from the year before, according to the metals research consultancy firm GFMS.

The Hong Kong Mercantile Exchange announced they will launch U.S. dollar-denominated silver futures contracts today. The exchange cited "surging global demand for silver" as the reason for the launch, pointing out that silver demand rose 67% in China between 2008 and 2010, with the nation accounting for nearly 23% of the world's silver consumption last year.

And China, being the world's second largest economy, can have a massive impact on the price when they buy. When China, the world's second largest economy, buys, the world tends to follow.

Thus it comes as no surprise that a number of large investment firms continue to buy these metals partly because of Chinese buying and partly because mining costs continue to rise. "The rising Chinese demand of gold and silver is one of the reasons why we continue investing in these metals, even at today's prices, coupled with the fact that underground reserves that can be mined at reasonable costs have become fewer and harder to find," said Martin Hennecke, associate director at Tyche Group in Hong Kong.

Silver price performance the last few weeks

Silver has lagged gold over the last month, but usually will outperform gold by a factor of 2 to 4 times in an uptrend, and drop faster than gold by 2 to 4 times in a downtrend. Since silver can be considered a hybrid metal- as both an investment metal and an industrial metal- this explains why while silver has not fallen while other industrial commodities have plunged. A buy point in silver would be when it clears its old intermediate high of 41.19 in SLV. Investors could then buy or add to their existing positions in SLV or AGQ, the 2-times silver ETF. Keep in mind that should the stock market have another meltdown, the price of silver would get hurt more than the price of gold since silver is perceived as a hybrid metal. So always keep your sell stops in line with your risk tolerance levels, and position size accordingly.


Gold is the safety play, also known as the fear trade. It also thrives in a weak economic environment. Countries around the world continue to print money, which devalues their currency, thus boosts the price of gold as its supply is not generally controlled by any central bank.

While gold continues to make new highs, members who continue to hold and/or pyramid their positions can add to their holdings each time gold gains x%, as we've suggested in prior reports. This way, one is averaging up, thus their average cost should remain well below the current price of gold, and thus one is investing from a position of psychological strength, knowing their stop loss is at or considerably above their average cost, depending on when they began buying.

This information is provided by Virtue of Selfish Investing, LLC (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2016 Virtue of Selfish Investing, LLC. All rights reserved.